Practice Service Corp. v. HCA Health Services of California, Inc.

Opinion

WOODS (Fred), J.

Practice Service Corporation (PSC) and CMS, Inc. (CMS) (plaintiffs and appellants) sued HCA Health Services of California, Inc. (HCA or respondent) and others for fraud and other torts. An alleged cotortfeasor, Western Health Associates Medical Group, Inc. (WHA), had declared bankruptcy and so was not a defendant. HCA demurred to the complaint and the trial court sustained the demurrer without leave to amend on the ground that only the WHA trustee in bankruptcy, not appellants, had standing to bring this action against HCA. We disagree and reverse the judgment of dismissal.

[1005]

Factual and Procedural Background

PSC leased employees and CMS provided consulting services to WHA, a medical group whose doctors (Drs. Clark, Click, Fowls, and Sadja) provided psychiatric services to patients. WHA had a service agreement with Canyon Ridge Hospital and provided it with a medical director and other health care professionals. HCA was a general partner of Canyon Ridge Hospital.

Appellants (PSC and CMS), as a result of services they provided to WHA became its creditors. On March 1,1991, WHA executed promissory notes to appellants, $310,165 to PSC and $121,562 to CMS. WHA also had an open book account with each appellant. To secure its interests, appellants obtained an assignment of WHA’s present and future accounts receivable.

In September 1991 WHA defaulted on its obligations to appellants.

In November 1991 WHA and its doctors formed a replacement company, Psychiatric Corporation of America (PCA). In December 1991 WHA ceased to function. Thereafter, the doctors (Drs. Clark, Click, Fowls, and Sadja) billed and practiced through PCA. PCA used WHA’s building facilities, equipment, phones, and patient list. The doctors, through PCA, continued to provide their services to Canyon Ridge Hospital. Neither WHA nor its doctors informed appellants of these changes.

Misled by WHA, the doctors, and agents of HCA (respondent), appellants deferred enforcing their claims against WHA and sought to negotiate ways WHA could pay its debts.

On December 11, 1992, an involuntary bankruptcy petition was filed against WHA. On January 4, 1993, WHA consented to relief under the Bankruptcy Code.